Q3 2021 Cracker Barrel Old Country Store Inc Earnings Call
Good day and welcome to the Cracker barrel fiscal year 2021 third quarter earnings Conference call.
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Please note today's event is being recorded.
I'd like to turn the conference over to Jessica Hazel Senior director of Investor Relations. Please go ahead.
Good morning, and welcome to Cracker barrels at third quarter of fiscal 'twenty 'twenty, 1 conference call and webcast. This morning, we issued a press release announcing our third quarter results in this press release and on this call. We will refer to non-GAAP financial measures for the third quarter ended April 30.
'twenty 'twenty 1.
The third quarter non-GAAP financial measures are adjusted to exclude the noncash amortization of the asset recognized from the games on our sell lease back transactions and their related tax impacts.
The company believes that excluding these items from its financial results provides investors with an enhanced understanding of the company's financial performance.
This information is not intended to be considered in isolation or as a substitute for net income or earnings per share information prepared in accordance with GAAP.
The last pages of the press release include reconciliation from the non-GAAP information to the GAAP financials.
On the call with me. This morning are cracker barrels president and CEO Sandy Cochran.
Senior Vice President and interim CFO, Doug to be on.
And senior Vice President and C M O jet and Tate.
Sandy will begin with a review of the business and Doug will review the financials and outlook. We will then open up the call for questions for Sandy Doug and yet.
On this call statements may be made by management of their beliefs and expectations regarding the company's future operating results or expected at future events.
These are known as forward looking statements, which involve risks and uncertainties that in many cases are beyond management's control and may cause actual results to differ materially from expectations.
We caution our listeners and readers in considering forward looking statements and information.
Many of the factors that could affect results are summarized in the cautionary description of risks and uncertainties found at the end of the press release and are described in detail at our reports that we file with or furnish to the SEC.
Finally, the information shared on this call is valid as of today's date and the company undertakes no obligation to update it except as may be required under applicable law.
I'll now turn the call over to Cracker barrels president and CEO Sandy Cochran.
Andy.
Thank you and good morning, everyone. I appreciate you joining us for today's call.
We delivered strong third quarter results, which exceeded our expectations our operators did an excellent job this quarter managing.
Significant step up in dine in traffic continuing to support elevated off premise sales and driving double digit retail sales growth compared to 2019 it.
It was largely due to our progress on sales recovery that we delivered operating income margin that improved by 530 basis points over the second quarter.
This strong financial performance combined with the actions we took during the pandemic to strengthen our balance sheet and the progress we made in the third quarter on paying down our debt enabled us to declare a quarterly dividend of $1 per share.
Our board has been committed to reestablishing of quarterly dividend as part of our overall capital allocation strategy and I'm glad that we delivered results that allowed them to start down this path this quarter.
Going forward as we have consistently done we will continue to evaluate our alternatives to prudently structure and allocate capital in ways that create value for all of our shareholders.
During the quarter, we delivered sequential monthly improvement in our restaurant sales performance when compared to the fiscal 2019 third quarter.
Our average restaurant sales volumes grew from approximately $56000 per week during fiscal January to approximately $70000 per week in April.
We believe this growth was driven by a number of factors.
First the progress of vaccinations in the relaxation of capacity restrictions.
Second our sales initiatives and strong retention of off premise sales, which remained above 20% of restaurant sales, even with increased dine in traffic.
And lastly for at least some of the quarter the favorable impact of the stimulus package on its impact on the consumer of all.
To expand a little further on some of these factors.
Regarding capacity restrictions on average our locations, we're operating at approximately 75% effective capacity during the third quarter.
On a weekday sales trends showed larger improvement than weekend during the quarter, which we attribute in part to the fact that we're less likely to bump up against those capacity constraints during the week.
As we move through the balance of the year, we look forward to further recovery as people return to their pre COVID-19 weekday routines and resume more normal summer travel and family vacation schedules.
This is an evolving situation that we continue to monitor as simple recovery progresses.
Key sales initiatives like the beer and wine program digital investments in our menu evolution initiative, all of which I've spoken to on previous calls contributed to our third quarter traffic and sales performance.
We anticipate continued favorable sales contributions from each of these initiatives as well as from our new fully integrated branding campaign, which launched in April.
The campaign, which was developed with our new advertising agency dentsu.
Highlights of the concept of care as our secret ingredient at.
It emphasizes the care, we take making our home store food Curating, our retail offerings welcoming our guests like family and taking care of our employees.
This launch is being supported with national and streaming television advertising, which runs for 6 weeks.
Digital and social media support and a refresh of our more than 1500 billboards.
As dine in sales grew our off premise volume remained strong and increased 144% over the more normalized fiscal 2019 third quarter.
In fact April off premise sales volumes outperformed the prior year when dining room operations were close and our stores were operating in an off premise only model.
We continue to be pleased with the growth in all of our off premise channels, which include individual to go third party delivery and catering.
Individual to go which includes either pick up in store or curbside remains by far of largest channel accounting for roughly 55% of off premise sales over the past 12 months.
During the quarter, we made enhancements to our curbside process to better streamline and enhance the guest experience.
And we anticipate solid long term retention of the increase we've experienced in our individual to go sales volumes, but we do expect some guests who during the pandemic felt more comfortable picking up an order and dining at home will return to joining us in our dining rooms.
Third party delivery at approximately 25% of off premise sales over the same period has grown rapidly since the start of the pandemic as we launched additional vendors and guest demand increased we.
We believe this channel has introduced us to new customers of new occasions, and we're pleased with how third party sales volumes held during the third quarter as dining rooms reopened.
Catering sales, which include special occasion heat n' serve accounts for the remainder of our off premise business.
Catering landscape has been challenging at times during COVID-19, but our catering teams have done a great job adapting with new offerings, such as on individually packaged box meals, which we believe have a strong value proposition and per person of affordability.
We believe our catering sales have further room for growth and will help with overall off premise retention as other channels may start to decline in a more normalized environment.
Yeah.
Lastly on off premise while it remains early we've been encouraged by the learnings we've achieved from a single location test of our virtual brand chicken and biscuits.
We're extending the test to 19 additional locations. This week and will provide you with further updates over the coming quarters.
Retail sales once again exceeded our expectations, while delivering improved gross margin.
At the retail shop, that's always been a differentiator for our brand with unique merchandise and strong value price points.
During the pandemic and as our guests have returned of indoor dining we've seen them respond quite positively to the convenience of dining and shopping in 1 location.
The merchandising and operations teams have continued to deliver strong sales performance on lower inventory levels and we've been encouraged by the response to the look and feel of a more curated collection of merchandise.
Teams have been nimble and applying recent learnings back into our purchasing strategies and we're seeing positive results. For example, we saw sales growth in our men's merchandise early in the pandemic and believe this was being driven by strong attachment rates from customers picking up off premise orders.
We quickly source, new and unique men's assortments and of seeing continued growth in this category.
So as we look to the fourth quarter, we're optimistic that retail sales will continue above fiscal 2019 levels.
However, we believe there could be some moderation in our retail sales and margin performance versus the third quarter due to the potential for inventory issues related to ongoing industry supply chain challenges.
Maple Street sales throughout the pandemic and during the recent recovery months have been very impressive.
Sales volumes remained well above fiscal 2019 levels during the quarter and on an annualized basis. The third quarter performance would result in au views of over a million dollars.
In addition, we've been pleased with the recent store economics and their ability to manage controllable expenses in support of a solid business model.
During the quarter, we opened a location in Tennessee been very pleased with the stores performance and are preparing for future store openings.
After the past year guests are craving community and connection and we believe at Maple Street with its focus on community is uniquely situated to meet this demand.
We're pleased with the growth in sales volumes of our cracker barrel and Maple Street stores achieved during the quarter.
Our operators at both brands did an excellent job executing at a difficult environment, we had a number of locations of encountered staffing challenges, which in some locations continue today.
Our field leaders and home office staff has implemented several strategies to quickly recruit hire and train employees on.
We've seen positive results already at.
Additionally, we face supply chain disruptions, both tight ingredient availability and distribution delays.
Through strong leadership, our operators are mitigating the guest impact from these ongoing sourcing and supply chain challenges as we work with our product suppliers.
We remain diligent across the company and ensuring that our operators are fully supported both of these areas and that our guests and employees feel cared for like family when they walk through our front doors.
Before I hand, it over to Doug I'd like to recognize the addition of chip away to our already accomplished and diverse board.
Chips of 40 year veteran of the restaurant industry and will bring valuable perspective, and meaningful insight to both of our board and our management team.
The third direct or we've added over the past 12 months as part of our thoughtful board succession planning and refreshment program.
And our shareholders employees and guests will benefit from his talents.
And with that I'll ask Doug to provide you with further financial details on the quarter Doug.
Thank you Sandy and good morning, everyone.
We were pleased with our sales performance in the third quarter, which exceeded our expectations.
Moving on sales during the quarter has a set of our closest point to normalize at fiscal year 2019 levels since the pandemic started.
In addition, we made significantly more progress on operating margin than we anticipated in the third quarter and our adjusted operating income was 7.8 percentage of total sales.
Our better than expected sales performance, especially on our retail business was the primary driver of our margin outperformance.
As I get into the detailed financials I will be commenting on our performance relative to both prior year and the third quarter of fiscal 2019, which we believe is the benchmark to understand the business at this point in time, given our stores were operating in an off premise only model from late March.
Through April of the prior year.
For the third quarter, we reported total revenue of $713 million.
Our restaurant revenue increased 58% on a retail revenue increased nearly 100% versus the prior year third quarter.
Compared to the third quarter of fiscal 2019 comparable store restaurant sales decreased 8.6%.
With more dining rooms open and our guests knowing they can return to a safe experience that delivers on our mission of pleasing people.
Our dine in sales volumes significantly accelerated in the third quarter.
Even with the dining rooms reopening reaching approved capacity you won't reach we retained approximately 95% of our second quarter of individual to go on delivery sales end of third quarter.
First store total off premise average weekly sales for the quarter were nearly $15000 at 144% increase from the third quarter of 2019.
This performance gives us confidence that we will see a positive off premise contribution to our average weekly sales volumes once we fully return to pre COVID-19 darn and volumes.
We continue to be pleased with her strong retail performance, which was far better than anticipated during the third quarter.
Comparable store retail sales increased 10, 8% over 2019.
We saw strength in the quarter from food and convenience.
Apparel and toys.
And versus fiscal my team, we had increases across all of operational retail metrics.
Such as the conversion rate of restaurant guests to retail purchase and the number of units purchased per retail ticket.
Moving on to expenses.
Our total cost of goods sold in the quarter was 28, 8% of total revenue, which was favorable to both the prior year and fiscal 2019 third quarter.
Even with the ongoing at elevated mix of retail sales.
Which doesn't reminder, has a higher cost of goods right.
Restaurant cost of goods sold benefited from lower food waste and moderate commodity inflation offset with pricing of 2.8%.
We anticipate a significant step up to approximately 5% commodity inflation for the fourth quarter, primarily due to the pork category.
Retail cost of goods performance was driven largely by our ability to maintain newer and seasonal merchandise sales at full price levels throughout the quarter.
Third quarter labor and related expenses at 35, 1% of revenue were also favorable to both of prior year end to fiscal 2019.
Our 2 year comparison benefited from approximately $7.5 million in cost savings.
Associated with the actions we took in the third quarter of fiscal 'twenty.
Additionally, later in the quarter, our stores delivered higher hourly productivity levels of sales increased ahead of our ability to increase staffing levels, which helped to offset much of the impact of wage inflation.
For the fourth quarter, we anticipate wage inflation on a constant mix basis of approximately 3% to 3.5%.
Adjusted other operating expenses was 23, 1% of revenue, which was favorable to the prior year, but unfavorable compared to 2019.
A portion of this unfavorable <unk> can be explained by temporary factors, including sales deleverage and higher utilities expense as a result of severe winter storms in February.
But the primary drivers of the increase versus 2019 or.
First.
Power supply expense and third party fees due to the strength of our off premise channels.
Incremental rent expense as a result of the sale leaseback transactions.
We anticipate these 2 changes to our business model during Covid will continue to impact on margins for the foreseeable future.
Moving beyond store level margins general and administrative expenses in the third quarter were $37.4 million, which is approximately flat compared to the third quarter of 2019.
We anticipate our fourth quarter G&A expense will.
It will be largely in line with the third quarter results.
Our effective tax rate for the third quarter was 21, 9%.
Which was lower than we anticipated due to the strength of our performance at higher than expected pre tax income.
Now expect our fourth quarter effective tax rate to be in the range of 11% to 12%.
These third quarter results culminated in GAAP earnings per diluted share of $1.41.
And adjusted earnings per diluted share of a dollar of 51 cents.
When adjusting for the noncash amortization of the asset recognize from the gains on the sale leaseback transactions.
As sales recover and we maintain our diligent approach to managing expenses EBITDA continues to grow in the third quarter, EBITDA was $83 million and 84% improvement over our second quarter EBITDA results.
To close out our detailed financial results from the third quarter.
I want to speak to the strength of our balance sheet.
In the third quarter, we generated $91 million on cash from operations and our cash at quarter end was $385 million.
As a result of our strong cash generation, we paid down $260 million of debt during the third quarter.
Leaving us with the remaining debt balance of $615 million.
We expect to refer to reduce our debt by up to $165 million in the fourth quarter, which.
Which would bring our total reduction debt reduction to $500 million during the fiscal year.
As we look to near term expectations I'd like to make a few additional comments we've been pleased with our year to date sales recovery and anticipate continued recovery over the coming quarters.
We expect fourth quarter total revenues to be approximately flat to the fourth quarter 2019 total revenues.
We also expect fourth quarter operating income margin will improve sequentially compared to the third quarter of 2021.
It remained below the fourth quarter of 2019.
Let me walk you through the assumptions underlying our expectations on.
I'll begin with a tailwind.
We believe our comparable store sales were further recover as capacity restrictions or lessened. Additionally.
Additionally, we're confident in the targeted cost savings actions, we took at the onset of the pandemic, which improved our cost structure and will benefit of results compared to 2019.
We believe there are also several headwinds when comparing to our fourth quarter expectations.
Versus fiscal 2019.
First the modest pricing increases that we took during the pandemic to maintain a strong value proposition will not offset the high commodity and wage inflation environment that we expect in the fourth quarter, even with a step up in fourth quarter pricing to 3.4%.
Second as we navigate the current staffing environment, we anticipate additional employee related expenses to support store hourly and field leadership staffing and retention efforts.
Lastly, with incremental rent expense associated with the 2020 and sale leaseback transactions, which as a reminder, bolstered the company's liquidity during the pandemic.
We believe our work throughout the pandemic has positioned us well to deliver on these fourth quarter expectations and with that I will turn the call over to the operator for questions.
Thank you we will now begin the question and answer session.
A question you May Press Star then 1 on you touched on some of them.
We are using a speakerphone please pick up on your handset before pressing the keys.
Withdraw your question. Please first stores in 2.
Today's first question comes from Jeff Farmer of Gordon Haskett. Please go ahead.
Good morning, Thank you handful of labor questions to start with end end in the prepared remarks, you did touch on a couple of these but.
What are your current staffing levels as we sit here in late may versus where they were in pre COVID-19 levels.
Okay I was waiting for that for you to continue on Jeff Hey, good morning of Sandy.
I'll say at this way that our staffing situation, although it's improved.
It's still challenging I would the way we categorize our store about 10% of of the chain. We've we've designated as critical in terms of how we believe our staffing is relative to the demand where either experiencing are anticipating about 25 are in the category of concern.
We've got a number of initiatives focused on that to help our operators.
Recruiting and retention.
But that continues to be 1 of the biggest challenges that we're dealing with in the current environment.
And then just 2 more quick ones. So in terms of thinking about the end or the early end of extended and supplemental unemployment benefits as we get into June and then into early July how how helpful. Do you expect that to be in terms of of the hiring process.
So the enhanced unemployment benefits certainly was 1 of the factors that's been impacting our.
Staffing environment and the moves that I guess now we're at about 23 states that have made the decision to discontinue.
Discontinue those additional benefits in the next month or so.
We will have an impact on the staffing environment, but I want to be clear what we're really expecting is that that mostly is going to help us with applicant flow. What we will still be facing is a lot of competition in the industry sort of everybody's hiring at once and.
The restaurant industry as America opens up but we've also got new competitors. If you will for a lot of the similar skill sets companies like Amazon and the kind of employment.
<unk> increases they've got all of that competition is going to continue I believe to impact.
Wage inflation so.
So in some sense it will help but it doesn't alleviate all of the problem and then final..1 this is a pretty straightforward. So I might've missed some of this but at the 5% commodity inflation in the fiscal fourth quarter.
So look carrying into fiscal 'twenty 'twenty, 2 how should we be thinking about commodity inflation as you move into your next fiscal year.
Yeah. Thanks, that's a great question I think in terms of the fourth quarter commodity inflation on just call out at that was.
Really being focused on the core commodity for us we're lapping some relatively low pricing on bank and as we're coming over that and with some of the changes in bellies and exports, it's causing kind of an unusual amount of inflation I expect that commodity deflation and inflation as we move.
Into 'twenty, 2 will moderate from that level.
Okay. Thank you.
Some of our next question today comes from Brett Levy with <unk>. Please.
Please go ahead.
Great. Thanks for taking the call.
Yes, if we just.
I'll go back into the labor again, starting with <unk>.
What do you think you need to do.
Strategically to not just.
Get the applicants to enter at the door, but to retain them. How much do you think it's going to incrementally cost you at the unit level, whether it's just incremental training added benefits.
And then also just.
What can you do it.
To accelerate your technology.
Efforts to try to drive some additional productivity to try to manage the labor side.
Brett Let me, let me take a stab at it I don't know if David wants to add something at the end. There's a lot in that question sort of some short term things and long term sense.
I think that we've got a lot of number of short term pressures some of which I just touched on so as we think about recruiting we're doing a number of things certainly short term everything from front porch events, which actually has been.
Encouragingly successful we've.
We've had a big program just to reach out to all of our former employees that we might have lost contact with over the course of the pandemic to try to get them back because that'll clearly those employees will be able to gear up certainly faster we're doing for some of our most challenged stores, we've actually set up of <unk>.
Centralized staffing function here or is it can supplement the work being done at the store to try to focus even more we've got employee referral programs. We've got you know we're starting we're trying to be sure that we're competitive in terms of the wage rates that we're offering in the markets that we're in.
For the skill codes that we're offering.
We also do your point is we need to be focused on we are on the retention of the employees that we have in short term, we can do things like shift meals and extra bonuses or guaranteed bonuses and perks that are in the kitchen to to try to be sure is at work.
We're an employer of choice to come to work for US and then when you get there you want US day I think our field teams are trying to do a lot to ensure that the kind of cross training emphasis we have.
And the kind of training in general to get productivity of is offsetting the the the need for flexibility. So you need an employee to be able to fill multiple positions. If you can as well as to mitigate the inefficiency of of.
A whole bunch of new employees at 1 time.
Longer term you know where.
We're gonna have to ensure that our you know our our wage and benefit packages of competitive at our training.
Is effective and that we you know we treat employees in a way that would want them to stay with us.
And have a career with cracker barrel.
I do think that there is some technology that we can apply and we are applying to that for example of lot of or some of the focus of our digital store work will allow guests to pay online and the more we allow them to do that that takes pressure off our cash we.
At will allow us to just ordering online and the more we can move volume to things like that it takes.
It takes the pressure off the labor in the stores at.
And we continue to look at how we can use.
Functionality in the back of the house with our new food system at our new labor system that streamlines and simplifies the works at our managers have to do to run our restaurants. So those are just a couple of examples of how we can apply technology, both guest facing and back of the house to have an impact.
Pact on labor.
And then just 2 quick.
Technical questions, what do you think.
You talked about 2 cohorts that are in firmed and challenged.
Many employees do you think you had on the hourly level pre.
Pre COVID-19 and what's the shortfall right now and then also you talked about an inching up of pricing how should we think about your approach to pricing. So we're not just at <unk>, but.
As we end 2001 and go into 'twenty, 2 and then I'll, let at let others have a chance.
So on the first question I'm I know some.
What you're looking for is a number you know I need X number of employees, it's not really the way we look at it because we're.
We're looking out sort of ramping at basically I'm not going to give me that number we think of it more as which stores have critical needs as we look forward and in particular in certain skill codes.
So.
The way I wanted to characterize it as sort of 25% or is it kind of a certain level at about 10 or percentage of critical but we are very focused on helping those stores.
We are thinking about our pricing strategy and how we need to move forward to offset these.
Inflation pressures, both in commodities and in wage.
I'm going to let Doug speak to what we've announced but we want to be very careful that we understand which of these pressures are short term versus long at.
And and being very mindful that our brand and our guest very much values value.
And then we want to be careful about not disrupting our reputation and commitment to offering you know value on our menu Doug I don't view on have we announced stock price I think worth of Joe We've talked in terms of short term pricing of about.
On pricing of carrying pricing of 3% that's in the fourth quarter.
And again as Andy said is I think as we consider pricing going into next fiscal year, we'll be paying very close attention to what's going on with wages at cost of goods and trying to maintain a balance with our pricing structure, but beyond that we haven't really talked much about what we think once at the same for next year just yet.
And then just 1 last question of the 35% the challenged.
Confirmed.
Are those.
Broad based or are those in any particular regions.
Oh, that's of those are broad, there's probably certain D. M. As an end debt that you might see more but it's it's it's broad.
Thank you.
Our next question today comes from Alton Stump with Longbow Research. Please go ahead of great. Thank you add congratulations.
On the impressive results you just wanted to ask are you kind of back to the pricing versus cost front end, obviously labor costs.
I mean on the commodity front, you think of short term pressure or is that something you think bleeds.
Better part of fiscal year 'twenty 2.
And I think that the pressures we're seeing.
Related to the 5% of relatively short term at I think again on.
That was related to bacon and some specific issues. There I think it will moderate as we move into fiscal 'twenty..2 we're not really prepared to give specific guidance on that but.
I think as the markets move forward over the next 2 or 3 months, we'll probably have a stronger opinion about which areas of our specific risks from 'twenty 2.
It makes sense helpful. And then just you know.
As you mentioned see any of that you are doing a billboard refresh and sort of call. That's at a pretty big piece of your advertising business, especially as you know presumably people will be out of doing a lot more road trips of summer so.
Just some color on.
And it's with a refreshed entails and how it's different than what you had previously.
Hi, This is jen.
The Billboard refresh as part of a larger longer term campaign that Sandeep spoke about which is our care campaign, which is across lots of channels, including our T V and on digital and of course to your question about Billboards and we are right now in the process of flipping over our over 1500, billboards and they they too.
It will bring to life this idea that care and the care, we take in making our food from scratch and the care, we taken our hospitality and our service model and in creating a retail items. These boards bring that to life right. So they they tell that story that our secret ingredient is care and so those are flipping right now Justin.
In time for what we hope and really believe will be a very busy summer travel season as families and friends take to the roads again after being cooped up for a long time. So we're excited for for people to see our billboards on the road and how they bring the care of campaign to life.
Great. Thanks, so much I'll hop back into queue.
And our next question today comes from Jake Bartlett with true of Securities. Please go ahead.
Great. Thanks for taking the question I know you've been hesitant in the past to give kind of.
Quarter to date or monthly same store sales, but I'm, hoping you can help us.
With really with the cadence.
Thinking about from April to May.
Just just how important kind of place we try to think about stimulus and also as we think about the impact of the stimulus as we think about the fourth quarter guidance and I'm trying to gauge how conservative debt that may be you could you give us any color on maybe perhaps whether it was stronger than April or weaker just whatever you could offer there would be great.
Alright, well, let me take a stab at that Jake So I'm not surprising we were encouraged.
Certainly through the third quarter at the pace of recovery in the sequentially sequential monthly sales and we definitely think that it reflects strong pent up demand.
Willingness to spend which we think was certainly amplified by the stimulus probably also helped by the savings that people were able to accumulate.
While during the pandemic and we're seeing that.
Although our guests as I mentioned are very value conscious we are seeing check in and add ons of premium sides and beer and wine and so on and to Jim's point that she just made we're very optimistic about our fourth quarter in general.
But may have been choppy at it started out strong we're very pleased with our mother's day performance both of dine in and off premise.
At the last couple of weeks of softened somewhat we're assuming and that this is related to the shift in memorial day from what would have been yesterday to next week.
I'm want to the debt.
Colonial pipeline impact and the impact that may have had on on travel during that week.
But in general we're looking forward as John mentioned to families traveling this summer.
And to people getting back to their normalized routines in terms of work, which we think will have a positive impact on our breakfast business.
Great. That's really helpful and then just on.
In terms of your recovery.
I sort of trajectory, but it is lower than what we're seeing with casual dining competitors can you offer your thoughts on why you think that is and.
Whether it's breakfast whether its the type of markets you're in just any idea of any.
So you can give us why cracker barrel of maybe even just your family dining is trailing.
Well I think that there's been a number of issues for us that we've talked about on all of the calls and Youre alluding to 2.
So a couple of them are probably the 2 biggest relate to breakfast at is continues to be the day part that is the most challenged at the 1 the easiest to sort of people to do at home, it's probably the 1 most connected to a work routine that's.
Continues to be disrupted so the breakfast day part is probably the biggest 1 and then the travel.
No we have not I think had the recovery in travel that certainly, we're hoping and expecting to see.
Over the next few months.
Great and then and then less of a quick question on commodities in the past few of you here.
What level of contract you what percentage of your commodity use these contract before could you could you share that now.
Sure Yeah, as we're looking at the fourth quarter and we've got a little over half of our commodity market basket locked up.
A little bit lower than 1 of had in the past and I think at with prices at elevated levels. We havent advanced some of our positions as far but we feel good about that and like I said.
North of 50%.
Great I appreciate it.
It's kind of a next question comes from Brian Martin with Deutsche Bank. Please go ahead.
Hey, Thank you.
I was hoping you could give us an update on the beer and wine initiatives can you talk about what youre seeing where you have that in place from a sales lift perspective and update us on the rollout schedule and then just from a restaurant sales mix perspective.
Where it was in the quarter end do you still feel good about getting to 2% or more of.
Of our restaurant sales.
Yes sure. This is John we have about 405 stores rolled out as of the end of Q3, and we're expecting that we'll be at about 600 stores by the time. It gets at the end of Q1 FY 'twenty 2.
We've made some great updates to our beer wine menu. So we've added things like sangria and Blue Moon that have done well and.
And actually 6 of the lack of 7 states that we've added have actually brought the mix up so we've been bringing on states that happened to have a higher mix of beverage alcohol and so that's helping us. So we're pleased with the results we've seen in places like the northeast and Texas.
Where mix is running and some of those states at double some of our early states average. So we are now.
I'm optimistic that we can get beer and wine mix to 2 per cent of dine in sales.
Great. Thanks, and then at just a follow up of question on on Maple Street.
For Tom you were talking about opening 15 units annually is that still a reasonable expectation for Maple Street. When we think about fiscal 2022, and maybe could you talk about whether you're finding enough quality sites out there maybe touch on the construction cost inflation environment could that have an impact just your thinking on <unk>.
Development there over the next couple of years next year at next couple of years.
Yeah, Brian on me I'll touch on at least some of those issues I'll start with just as I said in the prepared remarks I remain really pleased with their performance I feel really confident about the brand and the growth potential.
We are focused on securing the best sites and.
That is that's going it's going well, but maybe not as quite as fast as I had hoped I'm still hoping to get double digit gross in FY 'twenty, 2 whether it's going to be to the 15, we'll see.
We're gonna be doing both new markets and infill.
And we'll be able to update you more about construction costs in more detail in our next call.
Thank you.
I don't know if there's portions of that comes from Todd Brooks at CL King of Associates. Please go ahead.
Hey, good morning, everyone. Just a few questions. If I may 1 Sandra you were talking about just how encouraged you are with.
With your off premise revenue streams and the maintenance of those streams as dining rooms have reopened I guess as you.
You think about that business being in the kind of low twenties percentage of mix versus a little bit less than 10 pre pandemic.
What's your best guess for what that settle out point is for what percentage of mix you expect off premise to be just trying to get a sense of.
What <unk>, we're building back to beyond what we saw on fiscal 19.
Well I'm going to let Jim kind of speak to what your I assume kind of getting at Todd is off Prem stickiness.
Exactly right, Jim why don't you address on yeah.
Yeah, I think as Sandy said, we're really pleased with the strong demand for off premise offerings in Q3 and in particular April were been with a majority of our system open for dining rooms, we still did more sales and off premise. This year than in April of last year, where the dining rooms were closed so that has continued.
To reinforce.
Our optimism about that ability to maintain that stickiness I know on the last call Sandy talked about our belief that we could retain at least 50% of the growth. We saw in off premise from that sort of high single digits that we were at and of percentage of sales before the pandemic.
The 20% ish approximately 20% that we're at now.
She had said you know at least 50% I think we're comfortable today, saying, we're even more bullish about that we believe we will retain at least 60% of the growth that we saw from pre pandemic to current if not higher. So we continue to feel very positive about that although we know we will see some consumers.
Great out of individual categories categories like delivery back into dine in.
Seeing stronger than expected stickiness, and we anticipate strong growth from the catering channel.
Okay and is there any assumption within that assumption, what's the thought about.
So we're early on with the virtual brand, but are you building any thoughts on for that when you're talking about 60% or would that be.
Kind of an incremental off premise screen them at that does fully rollout.
We would treat that as incremental of that fully rolls out we've been working on optimizing the menu and the offering for the chicken and biscuits brand and gaining some operational learnings in the last couple of months and this week, we're expanding that test from 1 location to 19 stores.
Because we do believe chicken and biscuits has a simple, but winning combination because it's very broadly appealing food.
Hand, battered hand, breaded fried chicken tenders, just our top selling side.
Scratch made biscuits.
Combined with the fact that the menu very streamlined which enables us to deliver on guest expectations for speed.
Because of that we think that this brand may launch in at least half of our system.
Pending the results of of of test being successful.
That's great and then 2 more quick ones 1 Doug for you if.
If we look at the guidance and just thinking about getting back to fiscal 19 revenue levels in Q4.
As we look longer term to returning to full year fiscal 19 revenue levels.
Can you just walk through of the puts and takes how much tougher the inflation environment is the wage pressure and that incremental pressure on occupancy at another from.
Packaging and the sale lease back.
Where where do you feel like.
Operating margin when you get there fall out on.
On an equivalent revenues to fiscal 19.
Yeah.
Let me, let me take a crack at that end.
So.
You're talking about is I guess, what we would affectionately call the post Covid business model.
And we've done a lot of thinking at a lot of work around restructuring our business for success in terms of what is going to look like when we come through the pandemic, we feel really good about the steps that we're taking.
And are continuing to take to meaningful improve our business model over the long term we're on.
Also working actively on mitigating labor commodity and other headwinds at the entire industry is facing and that we're expect to continue to see in fiscal 'twenty 2.
At this time, no 1 really knows how how strong or how long these headwinds are going to be facing.
Facing us.
We believe that we can ultimately improve that is going on.
We will.
I'm sorry, it was at its while we can't say exactly 1 work on returns from fiscal 19 margins, we're confident that we.
We'll continue to make the business model improvements and we're doing everything we can to offset labor and commodity inflation and I'm optimistic that we'll see these margins improve over by the end of 'twenty 2.
Okay, Great and then 1 final 1 on this just gets back to.
The labor and the 2 buckets of the critical on the concerns of bucket.
Any operational changes required I know sandy when you talked about front porch dining in the past, but that was fairly labor intensive it's hard to get out to the porch to really service those customers well.
And those third of the stores, where there's some challenges are you are you having to curtail anything operationally that that maybe in the near term diminishes the sales potential for those units.
Yeah, we're giving our field leaders of lot of latitude about how they manage the business with the constraints that they're dealing with and so in some cases, yeah. The first thing they might say is I can't really support the front porch.
That's the way we would want to you might see they close of dining room. If they don't have enough staffing on the grill or the servers are certainly income some categories for a period of time too.
That is the way they might respond when they either don't have the staffing or you know, we still got employees, who unexpectedly can't come and work their shift that day for a variety of reasons. So what I've been really pleased with though is how in this very chaotic.
Environment, our field leaders.
Our leading through it and I think doing a good job of delivering the brand.
As this demand has ramped up.
Okay, great very helpful. Thank you all.
Ladies and gentlemen, I was reminded us of a question. Please press Star then 1 on that.
Question Today comes from Jon Tower Wells Fargo. Please go ahead.
Great. Thanks for taking the questions to kind of just have a few if I may 1st starting off with marketing spend at.
It sounds like you've obviously got a new program out there right now I am curious to know if you're back at a full strength of spend on a dollar basis relative to say, but 2019 levels or are you not spending at the full level, yet because of either capacity constraints at the restaurants or maybe even labor issues.
We're we're not at at the level that we were of somebody I don't know that it's as much capacity is that we didn't we.
We didn't.
Until we thought people were going to be back on the highways I didn't want to invest for example.
And refreshing the billboards so some part of the investment for the year, we postponed till the end because we didn't we didn't think we would have the impact and the benefit from at previously.
The marketing team has done a great job I think of shifting to more flexible like digital our digital marketing programs, which allow us to be more flexible and more targeted and Ah. So I think as we've gotten through this year, it's been somewhat opportunistic.
And evolving as the environment has changed I think when we speak in more detail of the next year, you'll see a much more normalized investment.
And distribution of our marketing spend.
Great and do you following up on that do you expect to return to pre crisis levels of spend or do you feel like you've found given the digital channel there like a more effective way with a lower dollar spend.
I don't think Gen is I'll actually I'll, let Jan answer this that I suspect she hasnt fully concluded but most of marketing people they'll spend all of the money that they're allocated it's just holiday spending and where they all of you know where it goes I will say that the the work she and her.
Our teams and our digital App teams have done and our new agency.
To help us understand what's possible and the kind of results we can get on digital do support.
Shifting more of our dollars to that channel and getting a lot of bang or a lot more bang for that Buck Jan do you want to add anymore, Yeah, I won't come on on the exact dollar amount, we're going to spend next year, but I will say you are right that we are transitioning more and more of our investment into the digital space.
On especially now that we have that fully rolled out digital store that brings together our eat cater in shop. So that people can on their same browsing visits they can put things from a restaurant in their cart. They can put cool items from the retail shop in their cart, they can even but of caterer.
<unk> order in their cart right. So that now that we have that and we're making significant improvements to.
Both our site and our App, we will continue to move dollars into those digital channels debt that drive conversion there and we have seen a nice uptick in conversion and average order value. So we'll continue to invest in at.
Okay. Thank you and then just pivoting to the retail sales obviously the gross margin. This quarter were very strong at some of the strongest you have on record.
Mistaken for the retail business and end.
I'm just curious if.
How much of this you would attribute to full price sales of our it sounds like full price sales mix was the driver of this so is there any way to parse out how much of this was tied to short term tailwind like stimulus say versus longer term initiatives around better inventory management or product selection for the consumer just trying to gauge.
You know when looking at these numbers how much tend to stick in the future.
I understand obviously the supply chain stuff you had mentioned it earlier, Doug might be a bit of a near term headwind but.
Any way to kind of think about it over the longer term would be great.
So.
I think first of all I, just got a fair retail team has done a phenomenal job of navigating through this and I know.
There's a lot of issues at play certainly the convenience of shopping and eating in the same location has resonated, but they've also just been able to to have the kind of assortment due debt.
Fun and unique selling.
On the stall just great value, but.
It's like America wants to have fun, and we had the product there that helped them do it and I think all of that really.
Really helped.
Our helped our sales in addition that then.
Full price sales helped our margins I think that the team has had a lot of learnings through this 1 of them I mentioned in my prepared remarks like you know at the men's assortment, we've been able to see improvements there and then add on to that I think they've also seen how this.
How the visual merchandising with less product potentially has allowed the guests to see the product better. So going forward. We believe we will be get some long term benefits about how much inventory, we need to generate the sales so.
Certainly there has been some impact of the stimulus and the savings.
But I think phase the retail team has done an excellent job of capturing that opportunity at.
And in learning from it and will be translating some of those learnings going forward.
Got it. Thank you and then just just following up I think 2 on earlier conversation about kind of the off premise mix end.
Doug you had mentioned earlier that 25% of your off premise around that was coming from delivery of our third party platform. So I'm wondering if there's any way to determine how many of these customers are existing in store customers.
And you know really.
I guess I'm trying to figure out how many of these customers might shift back to that in store occasion, when the option is available to them.
Just sticking to that third party delivery and then just 1 more on top of that I don't know if you've offered this before but is there any way to think.
Think about or tell us what the pricing differential is between.
And in store transactions on the delivery transaction, excluding all of the fees.
Simplistically put is there a 5 or 10%.
Reising on at delivery menu versus say in store transaction.
I'm going to actually ask Jen to speak to maybe the beginning of the different channels and stickiness and then.
I think you're going to say, we're not going on we don't provide that at the specific pricing.
On premium except to say that we largely offset of.
The fees, but Jim why don't you speak to the beginning part of that question.
Yes to your question about third party delivery consumers and how much of those we think will trade back to dine in visit.
What we have seen is at the third party delivery guest tends to be incremental to the cracker barrel day. They are the least likely to be our core guests.
There is a curbside pickup or in in store pickup guest is more likely to have at times dine in with US third party guests tend to be new to cracker barrel brand. They may have discovered cracker barrel during the pandemic and so they have been additive or incremental to us and we have been impressed with.
The stickiness, we really have seen at our dining rooms have opened.
An impressive portion of those third party sales have remained so.
No 1 can predict what will happen a year from now as the pandemic is truly in our rearview mirror, but the third party guest for us tends to be.
On a more incremental than their curbside guest.
And as we.
In terms of the third party delivery business a few years ago.
Spent a lot of time thinking through the implications that had on our margins.
And we have taken additional pricing on third party delivery, we just haven't quantified at.
You were to give us a try in your local area and go to and have a door dash delivery I think you'll see what our structure looks like relative to our in store menu.
That would probably help you out of it.
Yeah. Unfortunately, I don't have 1 around price.
I'll try next time of on the road and see what I can do but thank you for taking the time I appreciate it sort of thing.
Yeah.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the merits of doing pretty fond.
Our remarks.
Alright, well. Thank you all for joining US today, we appreciate your interest support and look forward to speaking with you again soon.
Okay.
It comes in.
Absolutely.
Ladies and gentlemen. This concludes today's conference call you may not at least not too long.
Sort of a wonderful day.